The CFPB: No More “Pushing the Envelope”

On January 23, 2018, Mick Mulvaney, Acting Director of the Consumer Financial Protection Bureau (the “CFPB”), published an opinion editorial in TheWall Street Journal (the “Op-Ed”) describing his vision of the CFPB’s role in regulating the financial services industry. The Op-Ed struck a clear and contrasting tone from that of his predecessor, Richard Cordray, in declaring that the CFPB will no longer “push the envelope.” Specifically, Mr. Mulvaney provided his vision relating to three areas of current CFPB operations.

Regulation through enforcement is dead. Mr. Mulvaney has declared “regulation through enforcement” is dead, and that financial institutions can expect “more formal rule making and less regulation by enforcement.” Mr. Mulvaney philosophized, “[a]fter all, it seems that the people [the CFPB] regulates should have the right to know what the rules are before being charged with breaking them.”

As we noted in an earlier post, over the past seven years the CFPB has pursued enforcement actions against a wide range of consumer financial services providers. In bringing many of these enforcement actions, the CFPB has relied upon its discretionary Unfair, Deceptive, or Abusive Acts and Practices (“UDAAP”) powers. At the same time, the CFPB has left undefined the meaning of a UDAAP. Without official guidance from the CFPB as to the meaning of UDAAP, critics of the CFPB have alleged that financial institutions are left trying to interpret each enforcement action taken and its possible application to their own operations. With Mr. Mulvaney’s Op-Ed, it appears that the financial services industry may no longer have to play a continuous guessing game with the CFPB as to when and where enforcement actions will be taken.

Enforcement only where quantifiable and unavoidable harm to consumer. If the CFPB will no longer seek to regulate the financial services industry through enforcement, the next reasonable question is when will the CFPB seek to utilize its enforcement powers? Mr. Mulvaney clarified that, in bringing an enforcement action, the CFPB will focus on the “quantifiable and unavoidable harm to the consumer.” For instance, the Op-Ed noted that in 2016 almost a third of the complaints to the CFPB related to debt collection, and only 0.9% related to prepaid cards and 2% to payday lending. In a definitive tone, Mr. Mulvaney stated that “[d]ata like that should, and will, guide actions.” Consequently, where there is not a clear quantifiable and unavoidable harm to the consumer, the CFPB may not direct its resources to that area.

The CFPB’s rulemaking will be guided by measurable and quantifiable cost-benefit analyses. Pursuant to the Dodd-Frank and Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the CFPB is required to “consider the potential costs and benefits to consumers and covered persons” prior to finalizing any rulemaking. Mr. Mulvaney described that, to his understanding, the Dodd-Frank Act requires the CFPB rulemaking decisions to be driven by a “quantitative analysis,” and while qualitative analysis also plays a role, qualitative analysis should not be to the exclusion of measurable costs and benefits.

In ending his Op-Ed, Mr. Mulvaney declared in somewhat dramatic fashion that the CFPB has a new mission. “[The CFPB] will exercise, with humility and prudence, the almost unparalleled power Congress has bestowed on us to enforce the law faithfully in furtherance of our mandate. But we go no further. The days of aggressively “pushing the envelope” are over.” To many in the financial services industry, this “new mission” is welcomed.

Dramatics aside, it is our belief that the financial services industry can expect a complete reimagining of the CFPB in 2018. Since Mr. Mulvaney’s appointment as Acting Director in November 2017, we have already seen various actions taken towards this end.

On January 31, 2018, the CFPB issued a Request for Information (“RFI”) on how the benefits and impacts of the CFPB’s use of administrative adjudications, and how its existing process can be improved. The purpose of the RFI was to ensure that its administrative adjudication process, as currently utilized, is fulfilling its proper and appropriate function of protecting consumers.

On January 23, 2018, the CFPB issued a RFI on how the CFPB has issued civil investigative demands (“CID”). The CFPB noted that comments received in response to this RFI will help the CFPB evaluate existing CID processes and procedures and to determine whether any changes are warranted.

On January 16, 2018, the CFPB published a call for evidence regarding the CFPB’s functions. The stated purpose of the call for evidence was to critically analyze the CFPB’s operations and to see that such future operations are properly aligned with the CFPB’s statutory purpose.

On January 16, 2018, the CFPB issued a statement on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Payday Lending Rule”). In issuing the statement, the CFPB announced that it intends to engage in the rulemaking process so that the CFPB may reconsider the Payday Lending Rule.

On December 21, 2017, the CFPB issued a Statement on the Home Mortgage Disclosure Act Rule (the “HMDA Rule”). The purpose of the statement concerning the HMDA Rule was to announce that the CFPB (i) did not intend to assess penalties for errors in data collected in 2018 and (ii) planned on starting the rulemaking process to reconsider various aspects of the HMDA Rule.